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How to Fund your Small Business

Looking to fund your new venture? Here are some ways to find funding and how to be better prepared before you ask for funding.

Standard Bank

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The launch and maintenance of a small business requires a great deal of time, patience, and capital. Though many aspiring business owners have the first two qualities in abundance, the last asset is harder to secure. Fortunately, there is a great deal of advice and a range of funding options available for those who believe they have the knowledge and the skills necessary for commercial success.

Related: 3 Ways to Fund Your Franchise (and 3 Ways You Should Not)

Ethel Nyembe, Head of Small Enterprises at Standard Bank, says most, if not all, entrepreneurs rely on lenders to provide the capital they need to open and maintain a business. This money will be used to cover the start-up cost of the enterprise, and also the operating costs, because it may take several months before you start turning a profit.

Below are the different types of funding for entrepreneurs to consider: 

1. Khula

Khula, the government’s small business finance agency, offers what is known as a credit guarantee scheme. The scheme guarantees that the bank will be paid in the event that the business owner defaults on their obligation: up to 50% to 90% of the bank loan can be indemnified. The maximum amount that can be approved under the scheme is R3 million.

To qualify for a Khula-supported loan, you will need to invest some of your own capital or resources. This may be as much as 10% of the amount you want to borrow, and can be either cash or equipment. 

2. Business Partners and Seda

Business Partners and the Small Enterprise and Development Agency (Seda) fund entrepreneurs, but they generally work with established businesses that want to expand.

One benefit you can derive from them, however, is the wealth of information contained on their websites (www.businesspartners.co.za, www.seda.org.za ).

3. Buying a franchise

The cost of a franchise ranges from R50 000 to millions. Many organisations let you pay part of the franchise costs out of profits, but they still require a large deposit.

Not all franchises are equal, and there are some unscrupulous operators who are simply in the business of collecting franchise fees.

Before you sign on the dotted line, call some existing franchise holders and find out about the average turnover, working hours and if the franchisor is keeping up their end of the bargain. Your bank is a valuable resource in this area, as they have specialised teams to deal with franchise banking.

Related: Build your Business Legacy through Succession Planning

If you do decide to invest in a franchise, follow these basic rules:

  • Consider partnering with someone you trust and with whom you work well. Not only will this spread the risk, you’ll know the company is in good hands when you’re away.
  • Get a lawyer to look at the contract.
  • Ask the franchisor what the rules are if you want to sell your franchise to a third party.
  • Ask to see their training manuals. If they don’t exist, reconsider the deal.
  • Get a breakdown of the costs involved and proof that the concern is solvent.
  • If you are unsure of the quality of the deal being offered, call the Franchise Association of South Africa (FASA) on: 011 484 1285.

Business plans

A business plan is the cornerstone of a business. It articulates your objectives and focuses challenges and opportunities. With a business plan, you could possibly approach private investors. A good business plan is non-negotiable when approaching the bank for finance.

Back-up fund

You may have a great product or service, but it takes time to accumulate income. You should have at least six months’ worth of living expenses in the bank in addition to your start-up capital. If the first months are lean, at least you won’t be worrying about your regular expenses.

Plan to eliminate all of your short-term debt and a big part of your long-term debt. The less you are forced to take funds from the business, the more capital you will have to grow it.

If you are approached for funding

If you are approached for funding by a friend or family member, ask them for a business plan and about their financial situation. Ask a lot of questions and assess if they have the right skills for the venture.

Related: How to Build Skills, Loyalty and Profits With Staff Training

If you decide to lend money or invest for equity, you should:

  • Be able to afford the investment to the point where if the business failed, it would not compromise your financial future;
  • Draw up an official legal document stating what your role is; what their role is and their obligations to you, should the business fail or succeed.
  • Be prepared to lose your money; and
  • Be prepared to lose a friendship if you have not managed expectations on both sides of the transaction.

“Whether you are running a start-up or funding it, don’t be afraid to ask your business banker for help; they may have resources and ideas that can assist you in achieving your ambition,” says Nyembe. “While a nine-to-five job will give you security and a regular pay cheque, the rewards of being a business owner are worth the extra effort.”

Standard Bank SA is the largest operating entity of Standard Bank Group, Africa’s largest bank by assets. Standard Bank SA provides the full spectrum of financial services, with more than 720 branches and over 7 100 ATMs. Independent surveys of customer satisfaction consistently place Standard Bank at or near the top of their rankings. The personal and business banking unit offers banking and other financial services to individuals and small-to-medium enterprises. For further information, go to community.standardbank.co.za

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The Alfa Romeo Stelvio – More Than An SUV

The All-New Alfa Romeo Stelvio draws inspiration from the legendary mountain pass linking Italy to Switzerland, with 48 hairpins in quick succession.

Alfa Romeo

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The All-New Alfa Romeo Stelvio draws inspiration from the legendary mountain pass linking Italy to Switzerland, with 48 hairpins in quick succession. The Stelvio pass is widely seen as one of the most beautiful and engaging roads on the planet.

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Enhance Your Entrepreneurial Flair With An Online Postgraduate Diploma From The University Of Pretoria

The Department of Business Management at the University of Pretoria, a leader in business management education, will be offering an Online Postgraduate Diploma in Entrepreneurship for the 2018 academic year with some seminars to enrich your action learning experience.

Dr Alex Antonites

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The Department of Business Management at the University of Pretoria, a leader in business management education, will be offering an Online Postgraduate Diploma in Entrepreneurship for the 2018 academic year with some seminars to enrich your action learning experience.

The programme content focuses on the start-up processes, creativity and opportunity recognition, business planning and marketing as well as financial management. Furthermore, the programme emphasises entrepreneurial growth and small business policy development with relevance to the enabling environment.

Who should enrol?

The programme is designed for pre-, nascent and start-up entrepreneurs who want to attain an advanced degree in entrepreneurship. It is also intended for individuals who work in an entrepreneurial environment and are involved with small business policy development. Although many students in the programme have academic credentials in entrepreneurship or business management, the programme is also appropriate if your education and/or experience may be in other disciplines (e.g. engineering or medicine).

Admission requirements

A relevant bachelor’s degree.

Related: This Enterprises UP Expert Explains Why Start-Ups Really Fail

Additional programme information

The duration of the course is one year. The language of tuition is English and the course will be presented in two blocks by means of the blended learning method (70% online and 30% contact sessions). Students need continuous access to the internet to complete the course.

Course Contents

Overview of modules for Block A

  • Ideation-to-market: Starting up
  • International Business Venturing
  • Venturing Strategy Building (Part 1)

Overview of modules for Block B

  • Entrepreneurial Marketing
  • Entrepreneurial Supply Chain Management
  • Entrepreneurial Finance
  • Venturing Strategy Building (Part 2)

Click here for more information.

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Win A Business Makeover With Retail Capital To The Value Of R250 000

Retail Capital is giving SMEs an opportunity to win a makeover to build their brand with an investment of R250,000.

Retail Capital

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Retail Capital is giving SMEs an opportunity to win a makeover to build their brand with an investment of R250,000. During the summer campaign, SMEs are encouraged to share the vision of how they would like to see their business grow, and led by a team of experts, Retail Capital will work with the winning SME to help make their vision come true.

While South Africa’s economy is not faring well, Retail Capital CEO Karl Westvig remains optimistic about the country’s retail and hospitality sectors. “We are seeing some green shoots, with an increase in turnover in these sectors – starting from the end of September. Economic conditions remain very tough, but businesses seem to be trading well into October and we’re hoping this continues into the festive season trading.”

According to recent statistics from Statistics South Africa (Stats SA), South Africa’s retail sales rose by 5.5% year-on-year in August 2017, following a downwardly revised 1.6% gain in the previous month and above market expectations of 2.3%. It is the biggest gain in retail trade since August of 2012.

Related: How To Raise Working Capital Finance

“I do believe that these sectors will see an improvement during the summer season. But, key to this will be for small business owners to ensure that they have the right amount of stock, adequate cash flow, as well as other systems in place to meet the ever-changing needs of customers,” says Westvig.

For many small businesses, however, continually adapting to market changes requires cash injections that they don’t often have.

The prize includes the following:

  • Business plan/consulting
  • Marketing strategy
  • Design and branding
  • Website and social Media and,
  • R50k capital to gear your business.

Westvig explains that the summer campaign tagline ‘Your Vision. Our Belief’ really speaks to why Retail Capital first opened its doors. “Our goal is to see the potential of small businesses and to work with them in making these become a reality.”

He adds that the idea is not to simply help one business during the campaign either. Westvig points out that one of the biggest challenges that small businesses face in the sluggish economy is enough foot traffic through their doors. “Generally, the main hurdle in creating brand awareness and projecting credibility of their establishments boils down to establishing a strong online presence.”

“One of the first ways that South Africans identify a business or service provider that they want to work with is over social media – even in a country where the digital divide has traditionally separated the technological haves from the have-nots,” he says.

He explains that companies that don’t have a social media presence are running the risk of being overlooked entirely. “They may attract customers in their own community with signage or word of mouth, but to grow a business, they need to expand their reach – and that’s where social media comes in.”

But, the reality is that resource and time constraints mean that for many SMEs, social media is not prioritised. “Unfortunately for the average small business owner, they don’t have the time or expertise to get connected.”

Understanding the importance of having an online presence, Retail Capital has also committed to developing the digital presence of all campaign entrants. This would include setting up each entrant’s digital presence on platforms such as Google, Facebook, Twitter, Tripadvisor, Zomato and any others that may be relevant to their specific market or industry.

“As a partner to many SMEs in South Africa, we are continually looking at new and innovative ways to help provide them with the much-needed support in order for them to realise their visions. SMEs need to be supported with initiatives like targeted education and training, supportive legislation, and funding opportunities that collectively help them grow our national economy,” says Westvig.

Related: 6 Great Tips For A Successful Shark Tank Pitch

Who we are and what we do:

“More than R1.25 billion has been extended to a range of businesses including food trucks, hair salons, restaurants, spas and franchised retail stores. Many of these businesses have not been able to raise funding in any other way, other than to go to unscrupulous lenders,”says Karl Westvig, the CEO Retail Capital, a company that provides working capital with the help of innovative lending technology.

“We have also estimated that for every R160 000 we lend, we create a new job. This means that 625 jobs have been created purely by enabling small businesses to get the funding they need for working capital requirements or expansion opportunities.”

Retail Capital’s system, which enables it to advance funding to small businesses, based on real time information on credit card transactions, is providing a new funding alternative to entrepreneurs who have previously been turned away by banks. Because it is able to get actual sales information, it can approve funding immediately, and allow for flexible repayment options based on sales cycles of the particular businesses it is funding.

“This creates significant opportunity for small business owners to focus on their business and grow volumes or look for expansion opportunities rather than spend their time frantically trying to repay debt or keep the business alive after debt repayments have eaten away at any cash reserves they might have had.”

Retail Capital funding is repaid by it taking a percentage of a business’s recorded credit or debit card sales, with repayments fluctuating in line with their business cycle. This has the effect of ensuring that it isn’t overburdened with debt.

“In the past six years since starting the business, small businesses have had the benefit of R1 billion in funding they would have been unable to get through traditional channels,”says Westvig.

Against the backdrop of recessionary conditions in South Africa, Retail Capital’s client information reveals growth in informal sector turnover across a number of industries.

“We believe that growth in the informal sector is outstripping that of the formal sector,”says Westvig.

As a large proportion of the businesses it funds are women- and black-owned, there is evidence that entrepreneurs who have previously been excluded from access to finance are now enjoying success now that their access to finance problem has been solved.

Win A Business Makeover with Retail Capital

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